Search form

The Troubled Past of Healthcare.gov's Lead Contractor

REUTERS/Brian Snyder

By Jerry Markon and ALICE CRITES, The Washington Post

November 17, 2013

MOST POPULAR

The lead contractor on the dysfunctional website for the Affordable Care Act is filled with executives from a company that mishandled at least 20 other government IT projects, including a flawed effort to automate retirement benefits for millions of federal workers, documents and interviews show.

CGI Federal, the main website developer, entered the U.S. government market a decade ago when its parent company purchased American Management Systems, a Fairfax County contractor that was coming off a series of troubled projects. CGI moved into AMS’s custom-made building off Interstate 66, changed the sign outside and kept the core of employees, who now populate the upper ranks of CGI Federal.

They include CGI Federal’s current and past presidents, the company’s chief technology officer, its vice president for federal health care and its health IT leader, according to company and other records. More than 100 former AMS employees are now senior executives or consultants working for CGI in the Washington area.

A top CGI official said this week that the company is “extremely proud” of its acquisition of AMS. Lorne Gorber, CGI’s senior vice president for global communications, said CGI had been aware of the AMS “trip-ups” but has transformed the AMS culture over the past decade. “Anyone at CGI who came from AMS would not be able to find any similarities in how they work today to how they worked a decade ago,’’ Gorber said.

He said that CGI’s overall government contracting work remains high quality and that the company “delivers 95 percent of its projects on time and on budget.’’

A year before CGI Group acquired AMS in 2004, AMS settled a lawsuit brought by the head of the Federal Retirement Thrift Investment Board, which had hired the company to upgrade the agency’s computer system. AMS had gone $60 million over budget and virtually all of the computer code it wrote turned out to be useless, according to a report by a U.S. Senate committee.

The thrift board work was only one in a series of troubled projects involving AMS at the federal level and in at least 12 states, according to government audit reports, interviews and press accounts. AMS-built computer systems sent Philadelphia school district paychecks to dead people, shipped military parts to the wrong places for the Defense Logistics Agency and made 380,000 programming errors for the Wisconsin revenue department, forcing counties to repay millions of dollars in incorrectly calculated sales taxes.

Lawrence Stiffler, who was director of automated systems for the thrift board at the time and a 25-year veteran of IT contracting for the federal government, said AMS was highly unreliable. “You couldn’t count on them to deliver anything,’’ he said.

In the years since the purchase, CGI has grown rapidly in the U.S., dramatically expanding its role as a federal and state contractor. Agencies that tapped CGI Federal often rehired the company and, in the past two years alone, the company has been awarded contracts with at least 25 federal agencies worth $2.3 billion.

Earl Devaney, who chaired the board that oversaw President Obama’s economic stimulus program, praised CGI Federal’s 2009 work on a website that collected information about how recipients used the federal money. “The system worked when it was supposed to work,’’ Devaney said.

But the years since the acquisition have also brought concerns about the quality of some of CGI’s work. The Centers for Medicare and Medicaid Services (CMS) — the government agency that awarded the Affordable Care Act contract to CGI Federal — previously rejected the company’s bid in 2010 to perform work on four health IT systems in part because of “performance issues” in carrying out an earlier contract, according to a Government Accountability Office ruling. CGI Federal protested the CMS decision, but the GAO upheld it. Neither agency has publicly detailed what the “performance issues” involved.

Meanwhile, state auditors in Hawaii in 2010 partially faulted another CGI subsidiary, CGI Technologies and Solutions, for years of delay on a computer system for the state tax department. The project had been marred by slow response time and numerous system failures. That CGI company also grew out of AMS, which had been the original contractor on the project. CGI officials said the system enabled the state to collect hundreds of millions of dollars in delinquent taxes.

More recently, three of the new state health-care exchanges that CGI Technologies and Solutions helped develop — in Hawaii, Vermont and Colorado — have also encountered major glitches and delays. Asked about the problems, CGI officials said all three exchanges are now up and running.

Potential ‘Red Flags’Government contracting experts said it’s not uncommon for IT vendors to run into software problems and cost overruns. But the experts added that the number of high-profile AMS projects that went awry before it was acquired, over such a relatively short period, was unusually high for a large and experienced company.

“These should all have been red flags for contract officers,” said Daniel I. Gordon, who was in charge of government procurement policy earlier in the Obama administration and is now associate dean for government procurement studies at George Washington University Law School. Gordon was not involved in awarding the contract to CGI Federal.

Administration officials have faulted CGI Federal’s performance on the health-care initiative. CMS administrator Marilyn Tavenner, for instance, told a congressional committee that the firm sometimes missed deadlines. The government also grew frustrated with CGI Federal because the firm said on repeated occasions that features of the exchange were ready when they were not, several officials have said.

As the lead contractor for HealthCare.gov, CGI Federal was responsible for building the website for the health insurance exchange covering the 36 states that do not have their own exchanges. Fifty-four other contractors worked on various parts of the federal exchange.

In response to questions about CGI’s record, CMS spokeswoman Tasha Bradley said: “Unfortunately, the experience on HealthCare.gov has been frustrating for many Americans. HealthCare.gov can and will be fixed, and we have called in additional technical help from across the country to solve some of the more complex technical issues.”

Administration and CGI Federal officials have said the company obtained the contract through a competitive process. CGI Federal has said the government considered its proposal to be the “best value.”

The company is on a list of pre-screened contractors who regularly do work for the Department of Health and Human Services, making CGI Federal eligible for projects requiring a fast turnaround on the grounds that it is familiar with the agency’s operations.

In an interview, Gorber, the CGI spokesman, declined to comment on the company’s work on HealthCare.gov. He pointed to earlier statements in which CGI officials said they delivered their portion of the project as required and faulted CMS for launching the website despite insufficient testing. “What’s important now,’’ he said, is that CGI is “fully committed to being part of the solution.’’ CGI officials rejected any comparison with AMS’s earlier failures.

Fast Growth, Then ProblemsAMS was a pioneering name in government contracting. It was formed in 1970 by five former Pentagon officials known as “whiz kids,’’ part of a group hired by Kennedy-era Defense Secretary Robert McNamara to systematize defense management.

The company expanded dramatically over the following decades, eventually winning IT contracts with a wide range of federal agencies and top corporations. AMS was among the first companies to “recognize the real contribution that the introduction of technology could make to the federal government,’’ said Paul Brands, AMS’s chief executive from 1992 to 2001.

By the late 1990s, however, the firm was growing so fast amid the dot-com boom that staff turnover and declining quality were becoming problems, former employees said.

When chairman and co-founder Charles O. Rossotti left in 1997 to become IRS commissioner, “everything fell apart,’’ said one former employee who spoke on the condition of anonymity because he still works in the IT industry. “It became well known that AMS came in, and prices would go outrageously high because we were far behind. It was just kind of standard practice.’’

The result was a cascade of delays, cost overruns and software failures. An AMS tax system prototype for Fairfax County produced some wrong addresses and erroneous taxes. In Mississippi, state officials won a $474 million jury verdict against AMS in 2000 for failing to deliver a new tax software system.

“They did not provide us one working piece of software after almost six years,’’ recalled Ed Buelow Jr., the state’s former revenue commissioner. “There were hundreds of errors. Nothing worked.’’ Mississippi and AMS ultimately agreed on a $185 million settlement.

Former AMS executives defended the company’s performance, saying its occasional failures were outweighed by successes on hundreds of other contracts. “We did some super things,’’ Brands said. “Yeah, we stubbed our toe once or twice, but we grew and we were profitable.’’ He blamed the firm’s former clients for failing to properly install its systems and attributed the Mississippi problems to “some relatively minor issues with some software.’’

Delays and Cost OverrunsPerhaps the biggest federal failure was the project for the Federal Retirement Thrift Investment Board, which manages the 401(k) accounts of 4.6 million former and current federal employees. With about $100 billion in investments at the time, it was one of the world’s largest defined-contribution benefit plans.

In 1997, AMS signed a $30 million contract to update the board’s archaic computer system. Four years later, with projected costs rising to $90 million, AMS was terminated. The company never delivered a workable system, according to a report by the Senate Committee on Governmental Affairs.

The report found that AMS had repeatedly missed its own deadlines, grossly overbilled travel expenses for its staff members and drafted far more software code than needed.

“The code failed system tests, and attempts to fix the errors caused further delays and increased costs,’’ said the report, which also faulted the thrift board for insufficient oversight. It was one of three reviews that criticized AMS for substandard work, along with reports by the Defense Contract Management Agency and a private firm, Integrated Benefit Solutions, hired by the thrift board to review the project.

“They couldn’t fix the problems because they didn’t know how,’’ said Stiffler, the board official, who brought in a backup contractor that completed the job on time and within budget — after throwing out more than 95 percent of AMS’s software code and rewriting the rest.

In its countersuit against the U.S. government, AMS acknowledged the cost overruns and delays but blamed the board for providing unclear direction. The firm paid the board $5 million when the suits were settled in 2003.

At least four AMS employees now in senior roles at CGI worked on the thrift board project. According to company records, the head of the team responsible for developing the software for the thrift board was George D. Schindler, a longtime AMS executive. Separate court documents say he did not play a direct role in designing the system, but the Senate report says he served on a company committee overseeing the project. Today, Schindler runs CGI’s U.S. operations, which employ 11,000 people. He headed CGI Federal when it bid for the Affordable Care Act contract and was succeeded in that post by another former AMS executive, Donna Ryan.

In a statement, Schindler said, “In the decade since Donna and I joined CGI through the AMS acquisition, CGI has applied the rigor and discipline of its operating model to the deep domain expertise that AMS brought its clients and evolved the DNA and culture — the way we go to market, our value propositions and our approach to delivery.” He added, “Our clients choose CGI because of this delivery rigor and our proven track record as a problem-solver willing to take on the most complex IT challenges. The acquisition of AMS has been critical to the success of CGI in the U.S.”

CGI’s AcquisitionBy 2004, contracting problems had helped drive down AMS’s revenue amid management shake-ups and layoffs. Media accounts talked of the firm’s declining reputation. But CGI saw an opportunity. Founded in 1976, the ­Montreal-based firm catered to banks and telecommunication companies but had done little U.S. government work. Given AMS’s experience, the purchase “was mostly a strategic decision to get a foot in the door into U.S. government contracting,’’ said Ray Bjorklund, who followed the transaction at the time as an analyst for a McLean corporate research firm.

Brands, the former AMS chief executive, recalled, “The AMS group had the federal experience and expertise and skill set, and CGI, coming in without being familiar with that marketplace, had to basically depend entirely on AMS’s expertise.”

In a May 2004 earnings call for investors, CGI founder and chief executive Serge Godin raved about AMS’s software and leadership team. “Given the similarities and values of the two companies, these are cultures that will marry very well,’’ said Godin, who added that “AMS provides us with a much greater presence in the U.S. market.’’

Under the deal, AMS’s defense and intelligence contracting units were sold to Arlington-based contractor CACI International. (As a foreign-owned company, CGI might have faced difficulties conducting work for the U.S. government in the national security realm.) CGI acquired the rest of AMS for $443 million. The two firms merged their U.S. operations into a single entity called CGI-AMS. Its first president, 25-year AMS executive Donna Morea, emphasized publicly that CGI and AMS “share core values and philosophies.’’

Inside AMS, recalled the former AMS employee, “everybody who was working on a federal contract that wasn’t on the defense or intelligence side just became CGI, and they kept their benefits and longevity.’’ The AMS name was dropped in 2006, and CGI Federal was incorporated in Virginia.